Frequently Asked Questions in Bar Exams on Insurance Law (1990-2006) and Other Insurance FAQs Typhoon as Fortuitous Event

Is the occurrence of a typhoon a fortuitous event?

General Rule:

Yes, if all the elements of a natural disaster or calamity concur. This holds true especially if the vessel

was seaworthy at the time it undertook that fateful voyage and that it was confirmed with the Coast

Guard that the weather condition would permit safe travel of the vessel to its destination. (Philippine

American General Insurance Co., Inc. v. MGG Marine Services, Inc., G.R. No. 135645, Mar. 8, 2002)

Exception:

If a vessel sank due to a typhoon, and there was failure to ascertain the direction of the storm and the

weather condition of the path they would be traversing, it constitutes lack of foresight and minimum

vigilance over its cargoes taking into account the surrounding circumstances of the case. Thus, the

common carrier will still be liable. (Arada v. CA, G.R. No. 98243, July 1, 1992) Mechanical Defects as Fortuitous Events Are mechanical defects considered fortuitous events?

No. Mechanical defects in the carrier are not considered a caso fortuito that exempts the

carrier from responsibility. (Sweet Lines, Inc. v. CA, G.R. No. L-46340, Apr. 29, 1983)

1. Tire blowout of a jeep is not a fortuitous event where there exists a specific act of negligence by the

carrier consisting of the fact that the jeepney was overloaded and speeding at the time of the incident.

(Juntilla v. Fontanar, G.R. No. L-45637, May 31, 1985)

2. Defective brakes cannot be considered fortuitous in character. (Vergara v. CA, G.R. No. 77679,

Sept. 30, 1987)

What are the instances when the defects in the notice or proof of loss are considered waived?

When the insurer:

1. Writes to the insured that he considers the policy null and void as the furnishing of notice or proof of

loss would be useless;

2. Recognizes his liability to pay the claim; 3. Denies all liability under the policy

4. Joins in the proceedings for determining the amount of the loss by arbitration, making no objections

on account of notice and preliminary proof; or

5. Makes Objection on any ground other than the formal defect in the preliminary proof.

What is misrepresentation?

It is an affirmative defense. To avoid liability, the insurer has the duty to establish such a defense by

satisfactory and convincing evidence. (Ng Gan Zee v. Asian Crusader Life Assn. Corp., G.R. No. L-

30685, May 30, 1983)

Note: In the absence of evidence that the insured has sufficient medical knowledge to enable him to

do distinguish between peptic ulcer and tumor, the statement of deceased that said tumor was

associated with ulcer of the stomach should be considered an expression in good faith. Fraudulent

intent of insured must be established to entitle insurer to rescind the insurance contract.

Misrepresentation, as a defense of insurer, is an affirmative defense which must be proved. (Ng Gan

Zee v. Asian Crusader Life Assn. Corp., G.R. No. L-30685, May 30, 1983).

Concealment of a Non-Material Fact Joanna applied for a non-medical life insurance. Joanna did not inform the insurer that one week prior

to her application for insurance, he was examined and confined at St. Lukes Hospital where she was

diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable

considering that the fact concealed had no bearing with the cause of death of the insured? Why?

No. The concealed fact is material to the approval and issuance of the insurance policy. It is well

settled that the insured need not die of the disease she failed to disclose to the insurer. It is sufficient

that his nondisclosure misled the insurer in forming his estimate of the risk of the proposed insurance

policy or in making inquiries. What is the test of materiality?

It is determined not by the event, but solely by the probable and reasonable influence of the facts

upon the party to whom the communication is due, in forming his estimate of the advantages of the

proposed contract, or in making his inquiries. (Sec. 31)

When is the insurance contract perfected?

When the assent or consent is manifested by the meeting of the offer and the acceptance upon the

thing and the cause which are to constitute the contract. Mere offer or proposal is not contemplated.

(De Lim v. Sun Life Assurance Co., G.R. No. L-15774, Nov. 29, 1920) Fire insurance policy Angela, owner of a condominium unit, insured the same against fire with the ELM Insurance Co., and

made the loss payable to his sister, Antonette. In case of loss by fire of the said condominium unit,

who may recover on the fire insurance policy?

Angela can recover on the fire insurance policy for the loss of said condominium unit. He has the insurable interest as owner-insured. As beneficiary in the fire insurance policy, Antonette cannot

recover on the fire insurance policy. For the beneficiary to recover on the fire or property insurance

policy, it is required that she must have insurable interest in the property insured. In this case,

Antonette does not have insurable interest in the condominium unit. (2001 Bar Question)

Differentiate insurable interest in life insurance and insurable interest in property insurance.

Insurable interest in life exists when there is reasonable ground founded on the relation of the parties,

either pecuniary or contractual or by blood or affinity, to expect some benefit or advantage from the

continuance of the life of the insured.

Traffic Violation Report When a passenger jeepney, insured but with an authorized drivers clause and was driven by a driver

who only holds a Traffic Violation report (TVR) because his license was confiscated, met an accident,

may the owner of the jeepney claim from the insurance company?

Yes. The fact that the driver was merely holding a TVR does not violate the condition that the driver

should have a valid and existing drivers license. Besides, such a condition should be disregarded

because what is involved is a passenger jeepney, and what is involved here is not own damage

insurance but third party liability where the injured party is a third party not privy to the contract of

insurance. (2003 Bar Question)

What is a cooperation clause?

It is that which provides that the insured shall give all such information and assistance as the insurer

may require, usually including attendance at trials or hearings.

What is a cooperation clause?

It is that which provides that the insured shall give all such information and assistance as the insurer

may require, usually including attendance at trials or hearings.

What is the authorized driver clause?

It indemnifies the insured owner against loss or damage to the car but limits the use of the insured

vehicle to: 1. The insured himself; or 2. Any person who drives on his order or with his permission.

(Villacorta v. Insurance Commissioner, G.R. No. 54171, Oct. 28, 1980)

What is the main purpose of an authorized driver clause

Its main purpose is to require a person other than the insured, who drives the car on the insureds

order, such as, his regular driver, or with his permission, such as a friend or member of the family or

the employees of a car service or repair shop to be duly licensed drivers and have no disqualification

to drive a motor vehicle. (Villacorta v. Insurance Commission, G.R. No. L-54171, Oct. 28, 1980)

What is a no fault indemnity clause?

It is a clause where the insurer is required to pay a third party injured or killed in an accident without

the necessity of proving fault or negligence on the part of the insured. There is a stipulated maximum

amount to be recovered. (1994 Bar Question)

What is the meaning of land transportation operator?

It means the owner or owners of motor vehicles for transportation of a passenger for compensation,

including school buses. (Sec. 373, [e])

What is the meaning of a motor vehicle owner?

It means the actual legal owner of a motor vehicle, whose name such vehicle is duly registered with

the Land Transportation Office. (Sec. 373, [d])

Who is a third-party in insurance?

Any person other than a passenger as defined in this section and shall also exclude a member of the

household, or a member of the family within the second degree of consanguinity or affinity, of a motor

vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect

of death, bodily injury, or damage to property arising out of and in the course of employment. (Sec.

373, [c])

Who is a passenger?

Any fare paying person being transported and conveyed in and by a motor vehicle for transportation

of passengers for compensation, including persons expressly authorized by law or by the vehicles

operator or his agents to ride without fare. (Sec. 373 [b])

What is the purpose of motor vehicle liability insurance?

To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents,

especially if they are poor regardless of financial capability of motor vehicle owners of operators

responsible for the accident sustained. (First Integrated Bonding Insurance Co., Inc. v. Hernando,

G.R. No. L-51221, July 31, 1991) What is motor vehicle liability insurance?

It is a protection coverage that will answer for legal liability for losses and damages for bodily injuries

or property damage that may be sustained by another arising from the use and operation of a motor

vehicle by its owner.

What is life insurance?

It is that which is payable on the death of a person or on his surviving a specified period, or otherwise

contingently on the continuance of cessation of life (Sec. 180). It is a mutual agreement by which a

party agrees to pay a given sum on the happening of a particular event contingent on the duration of

human life, in consideration of the payment of a smaller sum immediately, or in periodical payments

by the other party.

What is suretyship?

It is an agreement whereby the surety guarantees the performance by another of an undertaking or

an obligation in favor of a third party. (Sec. 175)

What is a no action clause?

It is a requirement in a policy of liability insurance which provides that suit and final judgment be first

obtained against the insured, that only thereafter can the person injured recover on the policy. (Guingon v. Del Monte, G.R. No. L-21806, Aug. 17, 1967) De la Cruz v. Capital Insurance & Surety Co., G.R. No. L-21574, June 30, 1966 Chris, a boxer, is a holder of an accident insurance policy. In a boxing match, he died after being

knocked out by the opponent. Can his father who is a beneficiary under said insurance policy

successfully claim indemnity from the insurance company?

Yes. Clearly, the proximate cause of death was the boxing contest. Death sustained in a boxing

contest is an accident. (De la Cruz v. Capital Insurance & Surety Co., G.R. No. L-21574, June 30,

1966)

What is casualty insurance?

It is that which covers loss or liability arising from accident or mishap, excluding those falling under

types of insurance as fire or marine. (Sec. 174)

What is fire insurance?

It is a contract of indemnity by which the insurer, for a consideration, agrees to indemnify the insured

against loss of or damage by fire, lightning, windstorm, tornado or earthquake and other allied risks,

when such risks are covered by extension to fire insurance policies or under separate policies. (Sec.

167)

What does the phrase port of refuge expenses mean?

These are the additional expenses incurred in repairing the damages suffered by a vessel because of

the perils insured against as well as those incurred for saving the vessel from such perils, such as the

expense of launching or raising the vessel or of towing or navigating it into port for her safety. These

are items to be borne by the insurer in addition to a total loss if that afterwards takes place. (Sec. 163)

What is the effect if unseaworthiness is unknown to the owner of the cargo?

It is immaterial in ordinary marine insurance and may not be used by him as a defense in order to

recover on the marine insurance policy. It becomes the obligation of a cargo owner to look for a

reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no

control over the vessel but he has control in the choice of the common carrier that will transport his

goods. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985) What is the effect of the admission of seaworthiness by the insurer?

If the policy provides that the seaworthiness of the vessel as between insured and insurer is admitted,

the issue of seaworthiness cannot be raised by the insurer without showing concealment or

misrepresentation by the insured. (Phil. American General Insurance Co. v. CA, G.R. No. 116940,

June 11, 1997)

It may mean:

1. That the warranty of seaworthiness is to be taken as fulfilled; or

2. That the risk of unseaworthiness is assumed by the insurer. (Philippine American General

Insurance Co., Inc. v CA, GR No. 116940. June 11, 1997) Right to Subrogation

Category: Law on Insurance

Company X procured an open-policy marine insurance from Y Insurance, a foreign corporation. The

insurance was for a transshipment of certain wooden work tools and workbenches purchased for

consignee Z. The cargo, packed inside one container van was shipped from Hamburg, Germany en

route to Manila, Philippines. The ship arrived and docked where cargo was received by Aboitiz

Shipping Corporation, thereafter it issued a bill of lading containing a notation grounded outside

warehouse. It was then shipped to Cebu City and was released to Z. Two days after its release,

Aboitiz received a call from Z informing it that the cargo sustained water damage. Z then informed the

Philippine office of Y Insurance for insurance claims. Y Insurance got an official weather report from

PAGASA, it would appear that heavy rains caused water damage to the shipment, noticeably the

shipment was placed outside the warehouse of Aboitiz based on the bill of lading containing an

notation grounded outside the warehouse. Aboitiz refused to settle the claim, Y Insurance paid the

amount of Php 280, 176.92 to consignee Z, and a subrogation receipt was thereafter signed.

A case for collection of actual damages with interest and attorneys fees was filed with RTC. Aboitiz

disavowed any liability and asserted that the claim had no factual and legal bases, and that complaint

had no cause of action, plaintiff Y Insurance had no personality to sue, cause of action was barred,

suit was premature there being no claim made upon Aboitiz. RTC rendered decision against Y

Insurance and case was elevated to CA, which reversed RTC decision. Case was then elevated to

SC.

ISSUES:

a. Is Respondent Y Insurance the real party-in-interest that possesses the right of subrogation to

claim reimbursement from Aboitiz?

b. Is this right to subrogation an absolute right?

RESOLUTION:

a. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely

incapacitated from filing a suit in local courts. Only when that foreign corporation is transacting or

doing business in the country will a license be necessary before it can institute suits. It may,

however, bring suits on isolated business transactions, which is not prohibited under Philippine law.

Thus, this Court has held that a foreign insurance company may sue in the Philippine courts upon the marine insurance policies issues by it abroad to cover international-bound cargoes shipped by a

Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in

business without the prescribed license, and not the lack of license per se, which bars a foreign

corporation from access to our courts. Thus, the payment by the insurer to the assured operates as

an equitable assignment of all remedies the assured may have against the third party who caused the

damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon

written assignment of claim. It accrues simply upon payment of the insurance by the insurer. (Aboitiz

Shipping Corporation vs. Insurance Company of North America, G.R. No. 168402, August6, 2008,

[Reyes, R.T.,J.])

b. NO. This Right of Subrogation has its limitations, to wit:

1. Both the insurer and the consignee are bound by the contractual stipulations under the bill of

lading;

2. The insurer can be subrogated only to the rights as the insured may have against the wrongdoer.

Sue and labor clause a clause under which the insurer may become liable to pay the insured in addition to the loss actually suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable (Sec. 163) Inchamaree clause a clause which makes the insurer liable for loss or damage to the hull or

machinery arising from the:

a. Negligence of the captain, engineers, etc.

b. Explosion, breakage of shafts; and

c. Latent defect of machinery or hull. (Thames and Mersey Marine Insurance Co v. Hamilton Fraser

and Co [1887] 12 AC 484)

Barratry clause a clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owner and to the prejudice of owners interest. It requires an intentional and willful act in its commission. No honest error or judgment or mere negligence, unless criminally gross, can be barratry. (Roque v. IAC, G.R. No. L- 66935, Nov. 11, 1985) All-risks insurance policy insurance against all causes of conceivable loss or damage,

except:

a. Excluded risk stipulated in the policy, or

b. due to fraud or intentional misconduct on the part of the insured (Chao Tiek Seng v. CA, GR. No.

84507, Mar. 15, 1990).

The insured has the initial burden of proving that the cargo was in good condition when the policy

attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden

shifts to the insurer to show the exception to the coverage.

What is a loan on bottomry?

It is one which is payable only if the vessel given as security for the loan completes in safety the

contemplated voyage.

What is the risk insured against in marine insurance?

General Rule: Only perils of the sea is insured against.

Exception: Unless perils of the ship are covered by an all-risks policy.

What is an all risks marine insurance policy?

General Rule:

It is that which insures against all causes of conceivable loss or damage.

Exception:

1. As otherwise excluded in the policy; or

2. Due to fraud or intentional misconduct on the part of the insured. (Choa Tiek v. CA, G.R. No.

84507, Mar. 15, 1990) This type of policy grants greater protection than that afforded by the perils

clause.

What does perils of the ship mean?

It is a loss which, in the ordinary course of events, results from: 1. The natural and inevitable action of

the sea 2. The ordinary wear and tear of the ship 3. The negligent failure of the ships owner to

provide the vessel with proper equipment to convey the cargo

What does the phrase perils of the sea or perils of navigation mean?

It includes only those casualties due to the unusual violence or extraordinary action of wind and wave,

or to other extraordinary causes connected with navigation.

Marine insurance includes:

1. Insurance against loss or damage to:

a. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and

respondentia, and interest in respect to all risks or perils of navigation;

b. Persons or property in connection with marine insurance;

c. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or

otherwise; and

d. Bridges, tunnels, piers, docks and other aids to navigation and transportation (Sec. 99)

Note: Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty

of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the ship owner or not. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985)

2. Marine protection and Indemnity insurance which means insurance against, or against

legal liability of the insured for loss, damage, or expense incident to ownership, operation,

chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in

use of ocean or inland waterways, including liability of the insured for personal injury, illness

or death or for loss of or damage to the property of another person. (Sec. 99) Measure of indemnity:

a. Valued policy the parties are bound by the valuation, if the insured had some interest at risk and

there is no fraud (Sec. 156)

b. Open policy the following rules shall apply in estimating a loss: i. value of the ship- value at the beginning of the risk ii. value of the cargo- actual cost when laden on board or market value at the time and place of lading iii. value of freightage- gross freightage exclusive of primage iv. cost of

insurance in each case to be added to the estimated value (Sec. 161)

What vessels are contemplated in marine insurance?

Those used, or at least, intended for navigation. E.g., one for shipping, chartering, voyage and the

like. Vessels which are used as museums or those that are stationary are not entitled to be insured

under this a marine insurance.

What is marine insurance?

Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other

insurable interest in movable property, may be exposed during a certain voyage or fixed period of

time.

What is the nature of a health care agreement? What is the effect of limited liability to health care agreements?

A health care agreement is in the nature of a non-life insurance. It is an established rule in insurance

contracts that when their terms contain limitations on liability, they should be construed strictly against

the insurer. These are contracts of adhesion the terms of which must be interpreted andenforced

stringently against the insurer which prepared the contract. This doctrine is equally applicable to

health care agreements. (Blue Cross Health Care, Inc. vs. Noemi and Danilo Olivares, G.R. No.

169737, February 12, 2008 [Corona, J.], citing Philamcare Health Systems, Inc. vs. CA) What is Uberrimae Fides Contract?

The contract of insurance is one of Perfect Good Faith not for the insured alone, but equally so far the

insurer. It requires the parties to the contract to disclose conditions affecting the risk of which He

ought to know.

What are pre-need plans?

They are contracts which provide for the performance of future services of the payment of future

monetary considerations at the time of actual need, for which planholders pay in cash or installment at

stated prices, with or without interest or insurance coverage and includes life, pension, education,

interment, and other plans which the Commission may from time to time approve. (Sec. 3.9. R.A.

8799)

What is a contract of insurance?

It is an agreement whereby one undertakes for a consideration to indemnify another against the loss,

damage or liability arising from an unknown or contingent event. (Sec. 2[1], Insurance Code) Note: A

contract of insurance is still a contract, thus it must have all the essential elements of a valid contract

as enumerated in Art. 1318 of the New Civil Code.

Who may take insurance?

Section 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured

as agent or trustee, or by other general words in the policy. Who may take insurance?

An insurance may be taken by a person, personally or through his agent or trustee.

If the insurance is taken by an agent or trustee, what must the agent or trustee do?

Since the insurance is to be applied exclusively to the interest of the person in whose name and for

whose benefit it is made, the agent or trustee when making an insurance contract for or on behalf of

his principal should, indicate that he is merely acting in a representative capacity by signing as such

agent or trustee, or by other general terms in the policy.

Section 55. To render an insurance effected by one partner or part-owner, applicable to the interest

of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as

are applicable to the joint or common interest.

What happens when the insurance is effected by a partner or a part-owner?

A partner or part-owner who insures partnership property in his own name limits the contract to his

individual share UNLESS the terms of the policy clearly show that the insurance was meant to cover

also the shares of the other partners.

Section 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim

the benefit of the policy. What happens when the description of the insured is general?

In order that the insurance may be applied to the interest of the person claiming the benefit of the

policy, he must show that he is the person named or described or that he belongs to the class of

persons comprehended in the policy.

Example?

If the policy is payable to the children, you must show that you are a child of the deceased. Not a

grand-child, nor a great-grand-child.

Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the

continuance of the risk, may become the owner of the interest insured.

Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the

same person becomes the owner of both the policy and the thing insured.

What is the reason behind Sec. 58?

Sec. 58 follows from the well established principle that a policy is a personal contract with the insured

and does NOT run with the insured property unless so expressly stipulated, and in the absence of an

assignment of the policy with the insurers consent, the purchaser of the interest of the property

requires no privity with the insurer.

In reading sec. 58, take note of Sec. 19 and 20.

Section 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured

must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

Section 20. Except in the cases specified in the next four sections, and in the cases of life, accident and health insurance, a change of interest in any part of a thing insured, unaccompanied by a

corresponding change of interest in the insurance, suspends the insurance to an equivalent extent,

until the interests in the thing and the interest in the insurance are vested in the same person.

Problem.

A borrowed 5,000 from B, and to secure payment of his obligation, he mortgaged his house to B. B

then insured the house for 5T. Subsequently, B assigned his mortgage credit to X, but did not make

the corresponding transfer of his right over the insurance policy. IF the house burns down, is Paul

entitled to collect the insurance money as assignee-mortgagee?

NO, since B did not assign his right over the insurance policy to X. A purchaser of insured property

who does Not take the precaution to obtain a transfer of the policy on the insurance, cannot in case of

loss, recover upon the contract, as the transfer of the property has the effect of suspending the

insurance until the purchaser becomes the owner of the policy as well as the property insured.

RCBC v. CA - Insurance Proceeds 289 SCRA 292 (1998) Facts:

> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a credit

facility in the amount of P30 million was initially granted. Upon GOYU's application increased GOYU's

credit facility to P50 million, then to P90 million, and finally to P117 million

> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in favor of

RCBC, which were registered with the Registry of Deeds at. Under each of these four mortgage

contracts, GOYU committed itself to insure the mortgaged property with an insurance company

approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC.

> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992,

Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance

policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU

> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently,

GOYU submitted its claim for indemnity.

> MICO denied the claim on the ground that the insurance policies were either attached pursuant to

writs of attachments/garnishments issued by various courts or that the insurance proceeds were also

claimed by other creditors of GOYU alleging better rights to the proceeds than the insured.

> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's creditors,

also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were

also denied for the same reasons that AGCO denied GOYU's claims.

> However, because the endorsements do not bear the signature of any officer of GOYU, the trial

court, as well as the Court of Appeals, concluded that the endorsements are defective and held that

RCBC has no right over the insurance proceeds.

Issue:

Whether or not RCBC has a right over the insurance proceeds.

Held:

RCBC has a right over the insurance proceeds.

It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the

same mortgaged property, such that each one of them may insure the same property for his own sole

benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive

benefit. In the present case, although it appears that GOYU obtained the subject insurance policies

naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts,

must be given due consideration in order to better serve the interest of justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC. The

Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance

policy in favor of any particular beneficiary or payee other than the insured had not such named

payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU

voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not

just from any other insurance company. Alchester would not have found out that the subject pieces of

property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU

itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining

insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and

verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor

of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this

was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified

under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person

or persons who prepared such endorsements. Over and above this, GOYU continued, in the

meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of

the loss insured against, it was too late for GOYU to disown the endorsements for any imagined or

contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been

actually an implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU

is at the very least estopped from assailing their operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to

enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due

endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public

policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under

the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the

proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the

basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of

insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is

made. The peculiarity of the circumstances obtaining in the instant case presents a justification to

take exception to the strict application of said provision, it having been sufficiently established that it

was the intention of the parties to designate RCBC as the party for whose benefit the insurance

policies were taken out. Consider thus the following:

1. It is undisputed that the insured pieces of property were the subject of mortgage contracts

entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities

from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor,

undertook to have the mortgaged property properly covered against any loss by an insurance

company acceptable to RCBC.

2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no

less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.

3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency,

Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the

validity of said endorsements.

4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities

extended by RCBC which was conditioned upon the endorsement of the insurance policies to be

taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement documents

prepared by Alchester, GOYU, despite the absence written conformity thereto, obviously considered

said endorsement to be sufficient compliance with its obligation under the mortgage contracts since

RCBC accordingly continued to extend the benefits of its credit facilities and GOYU continued to

benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary

of the various insurance policies obtained by GOYU. The intention of the parties will have to be given

full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively

applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for

whose benefit the policies were clearly intended.

Insular Life vs. Ebrado 80 SCRA 181 Facts:

> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his

beneficiary, referring to her as his wife.

> The insured then died and Carponia tried to claim the proceeds of the said plan.

> She admitted to being only the common law wife of the insured.

> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then

filed an action for interpleader.

Issue:

Whether or not the common law wife named as beneficiary can collect the proceeds.

Held:

NO.

The civil code prohibitions on donations made between persons guilty of adulterous concubinage

applies to insurance contracts. On matters not specifically provided for by the Insurance Law, the

general rules on Civil law shall apply. A life insurance policy is no different from a civil donation as far

as the beneficiary is concerned, since both are founded on liberality.

Why was the common law wife not ed to collect the proceeds despite the fact that she was the beneficiary? Isnt this against Sec. 53?

It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC had

to consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or concubinage from

being beneficiaries of the life insurance policies of the persons with whom they committed adultery or

concubinage. If the SC used only Sec. 53, it would have gone against Art. 739 and 2012.

Del Val v. Del Val 29 Phil 535 Facts:

> Petitioners and private respondents are brothers and Sisters and are the only heirs and next of kin

of Gregorio del Val who died intestate.

> It was found out that the deceased took out insurance on his life for the sum of 40T and made it

payable to private respondents as sole beneficiary.

> After Gregorios death, Andres collected the proceeds of the policy.

> Of the said policy, Andres paid 18T to redeem some real property which Gregorio had sold to third

persons during his lifetime.

> Said redemption of the property was made by Andres laywer in the name of Andres and the

petitioners. (Accdg to Andres, said redemption in the name of Petitioners and himself was without his

knowledge and that since the redemption, petitioners have been in possession of the property)

> Petitioners now contend that the amount of the insurance policy belonged to the estate of the

deceased and not to Andres personally.

> Pet filed a complaint for partition of property including the insurance proceeds

> Andress claims that he is the sole owner of the proceeds and prayed that he be declared:

> Sole owner of the real property, redeemed with the use of the insurance proceeds and its

remainder;

> Petitioners to account for the use and occupation of the premises.

Issue:

Whether or not the petitioners have a right to the insurance proceeds?

Held:

NOPE.

The contract of life insurance is a special contract and the destination of the proceeds thereof is

determined by special laws which deal exclusively with the subject. Our civil code has no provisions

which relate directly and specifically to life-insurance contracts of to the destination of life-insurance

proceeds that subject is regulated exclusively by the Code of Commerce. Thus, contention of

petitioners that proceeds should be considered as a dontation or gift and should be included in the

estate of the deceased is UNTENABLE.

Since the repurchase has been made n the names of all the heirs instead of the defendant alone,

petitioners claim that the property belongs to the heirs in common and not to the defendant

alone. The SC held that if it is established by evidence that that was his intention and that the real

estate was delivered to the plaintiffs with that understanding, then it is probable that their contention is

correct and that they are entitled to share equally with the defendant. HOWEVER, it appears from the

evidence that the conveyances were taken in the name of the plaintiffs without the knowledge and

consent of Andres, or that it was not his intention to make a gift to them of real estate, when it belongs

to him.

Guingon v. Del Monte 80 SCRA 181

Facts:

> The insured owned a fleet of jeepneys. He insured the operation of his jeepneys

against accidents with third part liability with Capital Insurance and Surety Co.

> One day, one of his jeepney dirivers, bumped and killed Guingon.

> An action for damages was then filed against the owner-insured, the driver and the company.

> The company sough to dismiss the charges against it on the ground of lack of cause of action

against it.

Issue:

Whether or not there is a cause of action against the company.

Held: YES.

The right of a person injured to sue the insurer of the party at fault depends on whether the contract of

insurance was intended to benefit third persons. The test applied here is: Where the contract

provides for indemnity against liability to third persons, then third persons to whom the insured is

liable, can sue the insurer. On the other hand, where the contract is for indemnity against actual loss

or payment, then third persons cannot proceed against the insurer, the contract being solely to

reimburse the insured for liability actually discharged by him through payment to third persons, said

third persons' recourse being thus limited to the insured alone

The policy in the present case, is one whereby the insurer agreed to indemnify the insured "against all

sums . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to

any person . . ." Clearly, therefore, it is one for indemnity against liability from the fact then that the

insured is liable to the third person, such third person is entitled to sue the insurer.

Since the policy in questioned contained a stipulation pour autrui, then the insurance company must

deliver the proceeds to the claimants.

Coquia v. Fieldmens Insurance 26 SCRA 172 Facts:

> On Dec. 1, 1961, Fieldmens Insurance co. Issued in favor of the Manila Yellow Taxicab a common

carrier insurance policy with a stipulation that the company shall indemnify the insured of the sums

which the latter wmy be held liable for with respect to death or bodily injury to any faire-paying

passenger including the driver and conductor.

> The policy also stated that in the event of the death of the driver, the Company shall indemnify his

personal representatives and at the Companys option may make indemnity payable directly to the

claimants or heirs of the claimants.

> During the policys lifetime, a taxicab of the insured driven by Coquia met an accident and Coquia

died.

> When the company refused to pay the only heirs of Coquia, his parents, they institued this

complaint. The company contends that plaintiffs have no cause of action since the Coquias have no

contractual relationship with the company.

Issue:

Whether or not plaintiffs have the right to collect on the policy.

Held:

YES.

Athough, in general, only parties to a contract may bring an action based thereon, this rule is subject

to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the

Philippines, reading: "If a contract should contain some stipulation in favor of a third person, he may

demand its fulfillment provided he communicated his acceptance to the obligor before its revocation.

A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have

clearly and deliberately conferred a favor upon a third person." This is but the restatement of a well-

known principle concerning contracts pour autrui, the enforcement of which may be demanded by a

third party for whose benefit it was made, although not a party to the contract, before the stipulation in

his favor has been revoked by the contracting parties

In the case at bar, the policy under consideration is typical of contracts pour autrui this character

being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the

corresponding premiums, which were deducted from his weekly commissions. Under these

conditions, it is clear that the Coquias who, admittedly, are the sole heirs of the deceased have

a direct cause of action against the Company, and, since they could have maintained this action by

themselves, without the assistance of the insured it goes without saying that they could and did

properly join the latter in filing the complaint herein.

Bonifacio Bros. v. Mora 20 SCRA 262 Facts:

> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora

would insure the car with HS Reyes as beneficiary.

> The car was then insured with State Insurance Company and the policy delivered to Mora.

> During the effectivity of the insurance contract, the car figured in an accident. The company then

assigned the accident to an insurance appraiser for investigation and appraisal of the damage.

> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix the car,

using materials supplied by the Ayala Auto Parts Company.

> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurers

appraiser. The insurance company drew a check in the amount of the insurance proceeds and

entrusted the check to its appraiser for delivery to the proper party.

> The car was delivered to Mora without the consent of HS Reyes, and without payment to Bonifacio

Bros and Ayala.

> Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala

filed a complaint against Mora and the insurer with the municipal court for the collection of P2,102.73.

> The insurance company filed its answer with a counterclaim for interpleader, requiring Bonifacio

and HS Reyes to interplead in order to determine who has a better right to the proceeds.

Issue:

Whether or not there is privity of contract between Bonficacio and Ayala on one hand and State

Insurance on the other.

Held:

NONE.

It is fundamental that contracts take effect only between the parties thereto, except in some specific

instance provided by law where the contract contains some stipulation in favor of a third

person. Such stipulation is known as a stipulation pour autrui; or a provision in favor of a third person

not a party to the contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him by the terms of the

contract, provided that the contracting parties have clearly and deliberately conferred a favor upon

such person. Consequently, a third person NOT a party to the contract has NO action against the

aprties thereto, and cannot generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must be settled by

determining whether the contracting parties intended to tender him such an interest by deliberately

inserting terms in their agreement with the avowed purpose of conferring favor upon such third

person. IN this connection, this court has laid down the rule that the fairest test to determine whether

the interest of a 3rd person in a contract is a stipulation pour autrui or merely an incidental interest, is

to rely upon the intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to disclose an intent

to give any benefit to any repairmen or material men in case of repair of the car in question. The

parties to the insurance contract omitted such stipulation, which is a circumstance that supports the

said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that

"Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they

intended to benefit.

A policy of insurance is a distinct and independent contract between the insured and insurer, and third

persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there

be some contract of trust, expressed or implied, by the insured and third person. In this case, no

contract of trust, express or implied. In this case, no contract of trust, expressed or implied exists. We,

therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as

the proceeds of insurance are concerned. The appellant's claim, if at all, is merely equitable in nature

and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros

Inc. This conclusion is deducible not only from the principle governing the operation and effect of

insurance contracts in general, but is clearly covered by the express provisions of section 50 of the

Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which

unmistakably shows the intention of the parties.

Binding Receipt What is a binding receipt according to Glora v. Philamlife?

A binding receipt or slip is ordinarily a document, slip or memorandum given to the insured, which

binds the insurance company to pay insurance should a loss occur pending action upon the

application and actual issuance of a policy.

The purpose of a binder is to provide temporary insurance pending an inquiry by the insurer as to the

character of the risk and to take the place of the policy until the latter can be issued.

The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance

effective from that time until the issuance of the formal policy or until rejection of the risk. Under a life

policy, it would establish liability upon the insurer if death occurred prior to the issuance of the policy.

A binder receipt would be misnamed if it does NOT bind the insurer. If the insurer issues a binder

receipt with terms which will negate, or neutralize the binding result of the receipt, then the insurer

would have actually practiced fraud on the applicant for insurance.

Gloria v. Philamlife Insurance Co. 73 OG 8660 Facts:

> In 1966, Roberto Narito applied for a 100T life insurance policy with Philamlife Insurance

Company. Narito was examined by Dra. Vergel de dios, the insurers medical examiner.

> She opined that Narito was insurable. Her opinion was confirmed by Dr. Orobia, the Associate

Medical Director of the insurer.

> On Oc. 31, 1966, an agent of the insured prepared an application for the life insurance whose

annual premium was P1,178. On the same date, the application was signed by Narito.

> Narito paid the first annual premium on the policy applied for. The insurers application form

contained a so-called Binding Receipt which was detachable.

> It is not sure whether or not Narito was given the Binding Receipt upon his payment of the first

premium, but what is certain that he was handed a Cashiers Receipt.

> From the time the insured received the application form its agent on Nov. 5, 1966, up to Dec. 6,

1966, it did not take any action with regard to the controverted insurance coverage.

> On Dec. 6, 1966, Narito was shot and killed. The beneficiaries submitted a claim to the

insurer. After an underwriting analysis conducted by the insurer, it found out that Narito was

unacceptable as an insurance risk. The claim was denied.

Issue:

Whether or not the beneficiaries can claim.

Held:

YES.

The application for insurance signed by the deceased contained the following stipulation: The binding

receipt must NOT be issued unless a binding deposit is paid which must be at least equal to the first

full premium. The preponderance of evidence is to the effect that the binding receipt was not issued

to the deceased when he paid the companys agent, the first annual premium of P1,178. Hence the

rights of the beneficiaries and the obligation of the company have to be determined solely in the

application for insurance an in the Cashiers receipt.

The application for insurance contained the following clause: There shall be no contract of insurance

unless a policy is issued on this application and the full first premium thereon actually paid. It should

be conceded that there shall be a contract of insurance once the first premium is paid and a policy is

issued. There is no question that the first premium was paid.

The problem is to resolve whether or not it can be said that the policy has been issued. IN this

connection, what may be noted is that, in contrast to the requirement of actual payment of the

premium, it was NOT required that the policy be actually issued. An assuming that no policy had

indeed been issued, it should still be held that the application for insurance was approved by the

company, with the actual issuance of the policy being a mere technicality. When an insurer accepts

and retains the first premium for an unreasonable length of time, it should be presumed that the

insurer had assumed the risk. It should therefore be liable for loss before the application is

subsequently rejected. In the case at bar, the company did NOT act on the application for insurance,

one way or the other, from Nov. 2 to Dec. 5, 1966, and no justification for the delay had been proven.

Hence, it should be held that the application for insurance of the deceased had been approved prior

to his death, although the policy had not actually been issued, for which reason, the company should

be liable to the beneficiaries.

Pacific Timber v. CA 112 SCRA 199 Facts:

> On March 13, 1963, Pacific secured temporary insurance from the Workemens Insurance Co. for

its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo.

> The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2

marine policies bore the number 53H01032 and 53H01033.

> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs

intended to be exported were lost due to a typhoon.

> Pacific filed its claim with the company, but the latter refused, contending that said loss may not be

considered as covered under the cover note because such became null and void by virtue of the

issuance of the marine policies.

Issue:

Whether or not the cover not was without consideration, thus null and void.

Held:

It was with consideration.

SC upheld Pacifics contention that said cover not was with consideration. The fact that no separate

premium was paid on the cover note before the loss was insured against occurred does not militate

against the validity of Pacifics contention, for no such premium could have been paid, since by the

nature of the cover note, it did not contain, as all cover notes do not contain, particulars of the

shipment that would serve as basis for the computation of the premiums. As a logical consequence,

no separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies

subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere

application.

Grepalife v. CA 89 SCRA 543 Facts:

> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr endowment

policy for 50T on the life of his one year old daughter Helen Go.

> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the branch

manager of Grepalife-Cebu. Mondragon then typed the data on the application form which was later

signed by Ngo.

> Ngo then paid the insurance premium and a binding deposit receipt was issued to him. The

binding receipt contained the following provision: If the applicant shall not have been insurable xxx

and the Company declines to approve the application, the insurance applied for shall not have been in

force at any time and the sum paid shall be returned to the applicant upon the surrender of this

receipt.

> Mondragon wrote on the bottom of the application form his strong recommendation for the approval

of the insurance application.

> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the

insurance application of Ngo for the simple reason that the 20yr endowment plan is not available for

minors below 7 yrs old.

> Mondragon wrote back the main office again strongly recommending the approval of the

endowment plan on the life of Helen, adding that Grepalife was the only insurance company NOT

selling endowment plans to children.

> On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a claim

with Gepalife, but the latter denied liability on the ground that there was no contract between the

insurer and the insured and a binding receipt is NOT evidence of such contract.

Issue:

Whether or not the binding deposit receipt, constituted a temporary contract of life insurance.

Held:

NO.

The binding receipt in question was merely an acknowledgement on behalf of the company, that the

latters branch office had received from the applicant, the insurance premium and had accepted the

application subject for processing by the insurance company, and that the latter will either approve or

reject the same on the basis of whether or not the applicant is insurable on standard rates.

Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had never

became on force at any time, pursuant to par. E of the said receipt. A binding receipt is manifestly

merely conditional and does NOT insure outright. Where an agreement is made between the

applicant and the agent, NO liability shall attach until the principal approves the risk and a receipt is

given by the agent.

The acceptance is merely conditional, and is subordinated to the act of the company in approving or

rejecting the application. Thus in life insurance, a binding slip or binding receipt does NOT insure by

itself.

Lim v. Sun Life 41 PHIL 263 Facts:

> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with Sunlife

in the amount of 5T.

> He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by Lim

and company issued a provisional policy

> Such policy contained the following provisions xx the abovementioned life is to be assured in

accordance with the terms and conditions contained or inserted by the Company in the policy which

may be granted by it in this particular case for 4 months only from the date of the application,

PROVIDED that the company shall confirm this agreement by issuing a policy on said application xxx.

Should the company NOT issue such a policy, then this agreement shall be null and void ab initio and

the Company shall be held not to have been on the risk at all, but in such case, the amount herein

shall be returned.

> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval of the

application by the home office of the insurance company.

> The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue:

Whether or not the beneficiary can collect the 5T.

Held: NO.

The contract of insurance was not consummated by the parties. The above quoted agreement clearly

stated that the agreement should NOT go into effect until the home office of the Company shall

confirm it by issuing a policy. It was nothing but an acknowledgment by the Company that it has

received a sum of money agreed upon as the first years premium upon a policy to be issued upon the

application if it is accepted by the Company.

When an agreement is made between the applicant and the agent whether by signing an application

containing such condition or otherwise, that no liability shall attach until the principal approves the risk

and a receipt is given by the agent, such acceptance is merely conditional and is subordinated to the

companys act in approving or rejecting; so in life insurance a binding slip or receipt does not insure

itself.

What is a cover note?

The cover note is merely a written memorandum of the most important terms of the preliminary

contract of insurance, intended to give temporary protection pending the investigation of the risk by

the insurer, or until the issuance of a formal policy, provided that it is later determined that the

applicant was insurable at the time it was given.

By its nature, it is subject to all conditions in the policy expected even though that policy may never

issue. In life insurance, where an agreement is made between an applicant and the insurers agent,

no liability shall attach until the insurer approves the risk. Thus, in life insurance, a binding slip or

binding receipt DOES NOT insure itself.

Can you explain a preliminary executory contract of insurance?

By a preliminary executory contract of insurance, the insurer makes a contract to insure the subject

matter at some subsequent time which may be definite or indefinite. Under such an executory

contract, the right acquired by the insured is merely to demand the delivery of the policy in

accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver the

said policy.

What are the rules governing cover notes?

1) Insurance companies doing business in the Philippines may issue cover notes to bind

insurance temporarily pending the issuance of the policy

2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1) of IC.

3) NO cover note shall be issued or renewed unless in the form previously approved by the

Insurance Commission.

4) A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of its

issuance, whether or not the premium therefore has been paid or not, BUT such cover note may be

canceled by either party upon at least 7 days notice to the other party.

5) If a cover not is not so canceled, a policy of insurance shall, within 60 days after the issuance of

the cover not be issued in lieu thereof. Such policy shall include within its terms the identical

insurance bound under the cover note and the premiums therefore.

6) A cover note may be extended or renewed beyond the aforementioned period of 60 days with

the written approval of the Insurance Commissioner, provided that such written approval may be

dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance company

concerned, that the risks involved, the values of such risks, and the premiums therefore have not as

yet been determined or established and that such extension or renewal is NOT contrary to and is not

for the purpose of violating any provision of the Insurance Code.

7) The insurance companies may impose on cover notes a deposit premium equivalent to at least

25% of the estimated premium of the intended insurance coverage but in no case less than P500.

Preliminary Contracts of Insurance

Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the

policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof,

including within its terms the identical insurance bound under the cover note and the premium

therefor.

Cover notes may be extended or renewed beyond such sixty days with the written approval of the

Commissioner if he determines that such extension is not contrary to and is not for the purpose of

violating any provisions of this Code. The Commissioner may promulgate rules and regulations

governing such extensions for the purpose of preventing such violations and may by such rules and

regulations dispense with the requirement of written approval by him in the case of extension in

compliance with such rules and regulations.

What are two types of preliminary contracts of insurance?

The preliminary contract of present insurance and the preliminary executory contract of

insurance.

What is a preliminary contract of present insurance?

By a preliminary contract of insurance, the insurer insures the subject matter usually by what is known

as a binding slip or binder or cover note which is the contract to be effective until the formal policy

is issued or the risk is rejected.

What are the kinds of insurable risks?

1) Personal risks life or health risks

2) Property risks loss or damage to property

3) Liability risks involve liability of the insured for an injury caused to the person or property of

another

What are the requirements in order that a risk be insurable?

1) The loss to be insured against must be important enough to warrant the existence of an

insurance contract

2) Risk must permit a reasonable statistical estimate of the chance of loss in order to determine

the amount of premium to be paid

3) The loss should be definite as to cause, time, place and amount

4) The loss is not catastrophic

5) Risk is accidental in nature

Requirements of an Insurance Policy Section 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;

(b) The amount to be insured except in the cases of open or running policies;

(c) The premium, or if the insurance is of a character where the exact premium is only determinable

upon the termination of the contract, a statement of the basis and rates upon which the final premium

is to be determined;

(d) The property or life insured;

(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

(f) The risks insured against; and

(g) The period during which the insurance is to continue.

What must a policy contain and what are the reason behind such requirements?

A policy must contain:

1. Names of the parties

2. Amount of insurance

to easily and exactly determine the amount of indemnity to be paid in case of loss or damage. This

requirement however can be dispensed with in cases of open or running policies.

3. Rate of premium

Because the premium represents the consideration of the contract; these rates are developed on

the basis of the nature and character of the risk assumed. Remember Atty. Quimsons famous

words? As the risk increases, the rate of premium also increases.

4. Property or life or thing insured

Constitutes the Subject Matter

5. Interests of the insured in the property

In order to determine actual damage. Remember, an owner gets the full value of the loss while a

mortgagee gets only the value of his credit.

6. Risks insured against

In order to know when the insurer is called to indemnify the insured, because if this is NOT stated,

and you hold the insurer liable for any loss due to any cause whatsoever, it will result to a big loss on

the part of the insurer.

7. Duration of the insurance

This period signifies the life of the policy. If the duration of insurance has already ended, it can no

longer be revived.

CIR v. Lincoln Phil Life - Automatic Increase Clause 379 SCRA 423 (2002) Facts:

> In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the

"Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an

automatic increase in the amount of life insurance coverage upon attainment of a certain age by the

insured without the need of issuing a new policy. The clause was to take effect in the year 1984.

> Documentary stamp taxes due on the policy were paid to the petitioner only on the initial sum

assured.

> Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984,

corresponding to the amount of automatic increase of the sum assured on the policy issued by

respondent.

> Lincoln questioned the deficiency assessments and sought their cancellation in a petition filed in

the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.

Issue:

Whether or not the automatic increase of the sum assured on the policy is taxable.

Held:

YES.

CIR claims that the "automatic increase clause" in the subject insurance policy is separate and

distinct from the main agreement and involves another transaction; and that, while no new policy was

issued, the original policy was essentially re-issued when the additional obligation was assumed upon

the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment based on

the additional insurance not covered in the main policy is in order. The SC agreed with this

contention.

The subject insurance policy at the time it was issued contained an "automatic increase clause."

Although the clause was to take effect only in 1984, it was written into the policy at the time of its

issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase

clause" already formed part and parcel of the insurance contract, hence, there was no need for an

execution of a separate agreement for the increase in the coverage that took effect in 1984 when the

assured reached a certain age.

It is clear from Section 173 of the NIRC that the payment of documentary stamp taxes is done at the

time the act is done or transaction had and the tax base for the computation of documentary stamp

taxes on life insurance policies under Section 183 of NIRC is the amount fixed in policy, unless the

interest of a person insured is susceptible of exact pecuniary measurement.

Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever

increases will take effect in the future by reason of the "automatic increase clause" embodied in the

policy without the need of another contract.

Here, although the automatic increase in the amount of life insurance coverage was to take effect

later on, the date of its effectivity, as well as the amount of the increase, was already definite at the

time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance

necessarily included the additional sum covered by the automatic increase clause because it was

already determinable at the time the transaction was entered into and formed part of the policy.

The "automatic increase clause" in the policy is in the nature of a conditional obligation under Article

1181, 8 by which the increase of the insurance coverage shall depend upon the happening of the

event which constitutes the obligation. In the instant case, the additional insurance that took effect in

1984 was an obligation subject to a suspensive obligation, 9 but still a part of the insurance sold to

which private respondent was liable for the payment of the documentary stamp tax.

Perez v. CA- Perfection of the Contract of Insurance 323 SCRA 613 (2000) Facts:

> Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for

P20,000.00.

> In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him

to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount

of P400.00 if the premium were paid annually.

> Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia

A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount

received was a "deposit."

> Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987,

he asked the latter to fill up another application form. On November 1, 1987, Perez was made to

undergo the required medical examination, which he passed.

> Lalog forwarded the application for additional insurance of Perez, together with all its supporting

papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office was supposed to

forward the papers to the Manila office.

> On November 25, 1987, Perez died while he was riding a banca which capsized during a storm.

> At the time of his death, his application papers for the additional insurance were still with the

Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the

Quezon office and so he personally brought the papers to the Manila office of BF Lifeman Insurance

Corporation. It was only on November 27, 1987 that said papers were received in Manila.

> Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation

approved the application and issued the corresponding policy for the P50,000.00 on December 2,

1987

> Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She was

paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident)

but the insurance company refused to pay the claim under the additional policy coverage of

P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the

insurance policy.

> In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the

insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez.

Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had

paid

> Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred

that the deceased had fulfilled all his prestations under the contract and all the elements of a valid

contract are present.

> RTC ruled in favor of Perez. CA reversed.

Issue:

Whether or not there was a perfected additional insurance contract.

Held:

The contract was not perfected.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate

the other for loss on a specified subject by specified perils. A contract, on the other hand, is a

meeting of the minds between two persons whereby one binds himself, with respect to the other to

give something or to render some service.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the

cause which are to constitute the contract. The offer must be certain and the acceptance absolute.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his

medical examination, his application was subject to the acceptance of private respondent BF Lifeman

Insurance Corporation. The perfection of the contract of insurance between the deceased and

respondent corporation was further conditioned upon compliance with the following requisites stated

in the application form:

"there shall be no contract of insurance unless and until a policy is issued on this application and that

the said policy shall not take effect until the premium has been paid and the policy delivered to and

accepted by me/us in person while I/We, am/are in good health."

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it

merely received the application form and all the requisite supporting papers of the applicant. Its

assent was given when it issues a corresponding policy to the applicant. Under the abovementioned

provision, it is only when the applicant pays the premium and receives and accepts the policy while he

is in good health that the contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for

additional insurance coverage were still with the branch office of respondent corporation in Gumaca

and it was only two days later, or on November 27, 1987, when Lalog personally delivered the

application papers to the head office in Manila. Consequently, there was absolutely no way the

acceptance of the application could have been communicated to the applicant for the latter to accept

inasmuch as the applicant at the time was already dead.

Tang v. CA- Insurance Fraud or Mistake 90 SCRA 236 Facts:

> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese,

applied for life insurance for 60T with Philamlife. The application was in two parts, both in English.

> The second part dealt with her state of health. Her answers having shown that she was health,

Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary.

> On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only

recent from the time she first applied, no further medical exam was made but she accomplished Part

1 (which certified the truthfulness of statements made in Part. 2)

> The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.

> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was

guilty of concealment and misrepresentation.

> Both trial court and CA ruled that Lee was guilty of concealment.

> Tangs position, however, is that because Lee was illiterate and spoke only Chinese, she could not

be held guilty of concealment of her health history because the application for insurance was English,

and the insurer has not proven that the terms thereof had been fully explained to her as provided by

Art. 1332 of CC.

Issue:

Whether or not Art. 1332 applies.

Held:

NO.

Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract

had been fully explained to the party who is unable to read or understand the language of the

contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here, the

insurance company is NOT seeking to enforce the contract; on the contrary, it is seeking to avoid its

performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly,

Philamlife was under no obligation to prove that the terms of the insurance contract were fully

explained to the other party. Even if we were to say that the insurer is the one seeking the

performance of the cont contracts by avoiding paying the claim, it has to be noted as above stated

that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is

represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of both

the trial court and the CA as to the Concealment of Lee, the SC affirms their decisions.

Concurring: J., Antonio

In a contract of insurance, each party must communicate to the other, in good faith, all facts within his

knowledge which are material to the contract, and which the other has no means of ascertaining. As

a general rule, the failure by the insured to disclose conditions affecting the risk of which he is aware

makes the contract voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which

means most abundant good faith, absolute and perfect candor or openness and honesty, absence

of any concealment or deception however slight. Here the CA found that the insured deliberately

concealed material facts about her physical condition and history and/or concealed with whoever

assisted her in relaying false information to the medical examiner. Certainly, the petitioner cannot

assume inconsistent positions by attempting to enforce the contract of insurance for the purpose of

collecting the proceeds of the policy and at the same time nullify the contract by claiming that it was

executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not

understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that

the terms thereof have been fully explained to him.

Enriquez v. SunLife- Insurance Policy 41 PHIL 269 Facts:

> On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity.

> 2 days later, he paid the sum of 6T to the companys anager in its Manila office and was given a

receipt.

> On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same

date, the Manila office prepared a letter notifying Herrer that his application has been accepted and

this was placed in the ordinary channels of transmission, but as far as known was never

actually mailed and never received by Herrer.

> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate brought this action to

recover the 6T paid by the deceased.

Issue:

Whether or not the insurance contract was perfected.

Held:

NO. The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that

the acceptance of the application ever came to the knowledge of the applicant. An acceptance of an

offer of insurance NOT actually or constructively communicated to the proposer does NOT make a

contract of insurane, as the locus poenitentiae is ended when an acceptance has passed beyond the

control of the party.

NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the

insurance company, and if after a certain period of time the insured is stil living, he is entitled to

regular smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life Insurance

on the other hand, the insured during the period of the coverage makes small regular payments and

upon his death, the insurer pays a big amount to his beneficiaries.

Sindayen v. Insular Life- Policy of Insurance 62 PHIL 9 Facts:

> Arturo Sindayen was a linotype operator in the Bureau of Printing. He and his wife Fortunat went

to Camiling to spend Christmas with his aunt Felicidad Estrada.

> On Dec. 26, 1932, while still in Camiling, he made a written application to Insular Life, through its

agent, Cristobal Hendoza, for a policy of insurance on his life in the sum of 1,000.

> He paid the agent P15 as part of the first premium. It was agreed that the policy, when and if

issued, should be delivered to Felicidad with whom Sindayen left the sum P25.06 to complete the

payment of the first annual premium of P40.06.

> On Jan 1, 1933, Sindayen was examined by Insulars doctor who made a favorable report to

Insular.

> The next day, Sindayen returned to Manila and resumed his work. On Jan. 11, 1933, Insular

accepted the risk and issued a policy, and mailed the same to its agent for delivery to the insured.

> On Jan. 12, 1933, Sindayen complained of a severe headache. ON Jan. 15, 1933, he called a

physician who found that Sindayen was suffering from acute nephritis and uremia. His illness did not

yield to treatment and on Jan. 19, 1933, he died.

> The policy which the company issued and mailed in manila on Jan. 11 1933 was received by its

agent in Camilin on Jan. 16, 1933. On Jan 18, 1933, the agent, in a